Tuesday, January 22, 2013

Does your child need to learn budgeting?

Budgeting is one of those life skills that practically everyone knows is critical, but that few people tend to lend much time or thought to throughout their day. Simply put, keeping to a budget just isn’t very much fun. Sure, it’s a great way to stockpile cash for a rainy day, but it does fly in the face of the motto “live for the moment,” doesn’t it?

That’s why it’s important to impress on children the importance of budgeting and saving. Sure, you don’t have to tell them that saving and budgeting could mean the difference between being able to retire comfortably when they reach 65, or having to schlep to a minimum-wage job every day to make ends meet. You don’t even have to tell them how much better life can be when the specter of large, looming debt drags at your soul day after day and keeps you from buying any of those things that they might want- like a car, for instance, or a house. It might more effectively get the point across, but you really don’t have to go that far.

With children, when it comes to budgeting, small steps are best, but teaching them this life skill should start as soon as possible. Many kids today begin learning about trade and the concept of money in preschool and kindergarten, so that by the time they’re done with these grade levels, many, (but not all) can usually identify the basic denominations and know that money is used for trading. That’s about as far as the school system will take it outside of teaching math concepts using money as a prop. Students may get some instruction in personal finance once they reach high school, but that leaves an 8-year gap that you’ll have to fill in order to avoid letting bad habits sink in.

As soon as a child understands the purpose of money, you can begin instructing them in budgeting and saving. Make a game out of it. For instance, you might hide pennies around your house and play hide-and-seek with them, offering a prize when your child has collected enough. They should in this case get progressively better prizes the more pennies that they collect. Of course, though, keep an eye out for enterprising kids who may know more than they let on - such as where you keep your spare change.

Later, an allowance is a great way to teach budgeting. Choose a variety of little jobs around the house that your youngster can accomplish, and then attach a cash value to it. You might for instance give them a weekly work list that looks like this:

Water the houseplants on Monday : $2.00

Sweep the kitchen floor on Tuesday: $2.00

Task 3 on Wednesday: $2.00

Task 4 on Thursday: $2.00

Task 5 on Friday: $2.00

This will provide the child with a $10.00 per week allowance, payable on Fridays, if you wish. Also, you can adjust the amounts and the tasks as you see fit. This will easily allow for a modified 50-30-20 budgeting plan that will also serve to help you teach the lesson. Make the 50%, or $5.00 which is ordinarily reserved for adult necessities the savings for something your child absolutely HAS to have, such as the latest video game, or a special doll. The 30%, or $3.00, can be for day-to-day wants such as small toys or candy. Finally, the 20%, or $2.00, should be regularly placed into a savings account. By doing this, your child will be able to regularly put money away in savings, get into the habit of budgeting so that they can save up to buy the things they want, and hopefully will be less dependent on credit when they get older. All that adds up to some gold-star parenting for certain!